Itta/224/2007 Of Kawaljit Enterprises v. The Commissioner Of Income Tax-I

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD WEDNESDAY, THE TWENIIETH DAY OF SEPTEIUBERTWO THOUSAND AND TWENTY THREE PRESENT THE HONOURABLE SRI JUSTICE P.SAM KOSHYAND THE HONOURABLE SRI JUSTICE LAXMI NARAYANA ALISHETry INCOME TAX TRIBUNAL APPEAL NO:224 OF 2OOl 'lncome Tax Tribunal Appeal Under Section 260 of the lncome Tax Act, against the orderof the lncome Tax Appellate Tribunal, B Bench, Hyderabad in ITA No.649/hyd/03 forassessnrent Year 1998-99 dated 29-12-2006 preferred against the Order of the Commissionerof lncome Tax Appeals - ll Hyderabad, Appeal No. ITA No.188/CIT/(A)-ll 01-02 dated10-01-2003, Preferred against the Order of the Deputy Commissioner of lncome Tax, Range -of the lncome Tax Appellate Tribunal, B Bench, Hyderabad in ITA No.649/hyd/03 forassessnrent Year 1998-99 dated 29-12-2006 preferred against the Order of the Commissionerof lncome Tax Appeals - ll Hyderabad, Appeal No. ITA No.188/CIT/(A)-ll 01-02 dated10-01-2003, Preferred against the Order of the Deputy Commissioner of lncome Tax, Range -13(1) Hyderabad PAN/GIR No K - 309/98 '99/Dec -'13('l) dated 28-09-2001 . Between: Kawaljit Enterprises, Secunderabad ...APPELLANT AND The Commissioner of Income Tax-|, Hyderabad. Andhra Pradesh ...RESPONDENT Counsel for the Appellant : M/S. K NEERAJA Counsel for the Respondent : M/S SWAPNA REDDY (SC FOR INCOME TAX)The Court delivered the following: JUDGMENT HONOTIRABLE SRI JUSTICE P.SAM KOSTTYANDHON'BLE SRI JUSTICE LAXMI NARAYANA ALISHETTY INCOMII f'AX TRIBIINAL APPEAL NO.224 OF 2OO7 JUDGMENT: (per Llon'ble Si Justtce Larmi NaraAana AlishettA) The present appeal has been filed under section 260-A ofIncome Tax Act, 196 I (for short, the "Act") assailing the orderpassed by Income Tax Appellate Tribunal, Bench-B, Hyderabad (forshort "Tribunal") in ITA No.649/Hyd,/O3, dated 29.12.2006 for theAssessment Year 1998-99. Vide impugned order, dated29.12.2006, the Tribunal dismissed the appeal filed by theappellant by observing that the appellant failed to satisfactorilyexplain the income and thereby conlirmed the order of theCommissioner of Income Tax (Appeals)-ll, Hyderabad [for short,CIT(A)I and levied penalty under Section 27l(ll(cl of the Act. 2. Heard learned counsel Ms. K.Neeraja for the appellant andthe learned standing counsel Ms. B.Swapna Reddy for therespondent. 3. The brief lacts leading to filing of present appeal areASunder: 4. The appellant-firm is engaged in the business of exhibitionand distribution of films. The appellant filed return on 31.10.1998 for the assessment year 1998-99, thereby declaring the totalincome of Rs.69,940/-. Survey operation was conducted on18.12.1998 under Section 133-A of the Act and consequently,appellant filed revised return declaring total income ofRs.5,79,940/-. The said return was initiaily processed underSection 1a3(1)(a) of the Act and later, the same was converted intoscrutiny by issuing notice under Section V3(21 of the Act. 5. During the course of scrutiny, the appellant was asked toexplain difference between the figures obtained from the profit andloss account annexed to the return of income and printouts takenfrom the computer available in the business premises of theappellant, which was found during survey operations. In the profitand loss account hled along with return, the gross receipts shownto a tune of Rs.66,31,34O/- as against sum of Rs.66, 18,041/- wasclaimed as expenditure, thereby showing a net profit ofRs. 15,298/-. However, as per the proht and loss account obtainedfrom the computer, the total receipts were to a tune ofRs.84,99,708/- as against expenditure of Rs.67,24,42O/- andthus, the net profit was worked out to Rs. 17,75,2791-. 6. The Assessing Oflicer (A.O.) issued notices from time to timeseeking clarification from the appellant with regard to grossreceipts declared in the computerized profit and loss account. The -) 6. The Assessing Oflicer (A.O.) issued notices from time to timeseeking clarification from the appellant with regard to grossreceipts declared in the computerized profit and loss account. The -) appellant vide its letter dated 16.03.2O01 admitted the profit andloss account found during the survey. The A.O. proceeded furtherand completed the assessment taking into consideration the profitand loss account from the computer at the time of survey. Thus,the A.O., made an addition of Rs.8,86,984/-. Further, the A.O.,also initiated penalty proceedings under Section 271(1Xc) of theAct. In response to the penalty notice, the appellant againcontended that they were not aware as to how the accountantmaintained the a.ccounts and though all the information regardingthe transactions of the business was furnished to the accountant,he admits to have forgotten to enter certain entries regarding tocertain expenditure incurred by the firm. 7. The A.O. further observed tllat the statements of theasssessee are self-contradictory. On one hand, the appellantadmits the correctness of the receipts shown in the computerizedprofit and loss account, but claims that certain expenditure wasnot entered at that time and in fact, claimed additional expenditureof Rs.3,O1,605/-, which was accepted in the assessment order andthus, the further difference is only on account of conceaiment ofincome and therefore, the A.O. levied a minimum penalty ofRs.3,O9,3O7l-, vide his order dated 28.09.2OO1. 8. Aggrieved by the order dated 2E.O9.2OOI, the appellant filedappeal before the first appellate authority contending that thepenalty was levied only on the basis of findings given in theassessment order without bringing anything on record to provethat the assessee has concealed the income or furnishedinaccurate particulars. The appellant further contended that theexplanations given by the assessee were not considered properly bythe A.O., with regard to the profit and loss account obtained fromthe computer of the accountant and that only to purchase peacewith the Department, the appellant agreed to the additions. 9. The appellant filed rectification petition on the ground thatan amount of Rs.2,34,267 l- was added to the total income treatingit as stock in trade and therefore, claimed deduction under Rule98. The said petition was allowed vide order dated 19.12.2OO2 ar.dthe total income was determined at Rs. 12,29 ,262 /-. 10. The first appellate authority observed that in view ofExplanation (l) to Section 271(1)(c) of the Act, upon making anaddition a presumption of concealment is an automatic. That it isfor the assessee to adduce evidence to the satisfaction of the A.O.to the effect that that it is not the concealed income or theexplanation given by him is a bona frde and all the facts relating to 5 the same and material for the computation of the total income hasbeen fully disclosecl by the assessee. 1 1. The first appellate authority further observed that theassessee has not furnished any explanation as to how theadditional incom.e arose. Further contention of the appellant thatthe trial balance etc. prepared by the accountant was found to befalse by the A.O. The hrst appellate authority held that theassessee has not discharged the burden cast upon it to prove tothe satisfaction of the A.O., the income earned by it from businessof exhibition of hlms and thus, confirmed the pena.lty order of theA.O. vide it's order dated 1O.O1.2023. 12. Aggrieved by' the order of l-rrst appellate authority, dated10.O1.2OO3, the appellant filed appeal before the Income TaxAppellate Tribunal (for short, 'ITATJ, vide I.T.A.No.6 9l Hl2OO3.The appellant reiterated all the contentions which were takenbefore the first appellate authority and further contended thatbefore initiating penalty proceedings, the A.O. has to record hissatisfaction that there was concealment of income and in theinstant case, thr: A.O., has not recorded such satisfaction in theassessment pro<:eedings and thus, initiation of the proceedingswithout recording requisite satisfaction is bad in law. 12. Aggrieved by' the order of l-rrst appellate authority, dated10.O1.2OO3, the appellant filed appeal before the Income TaxAppellate Tribunal (for short, 'ITATJ, vide I.T.A.No.6 9l Hl2OO3.The appellant reiterated all the contentions which were takenbefore the first appellate authority and further contended thatbefore initiating penalty proceedings, the A.O. has to record hissatisfaction that there was concealment of income and in theinstant case, thr: A.O., has not recorded such satisfaction in theassessment pro<:eedings and thus, initiation of the proceedingswithout recording requisite satisfaction is bad in law. 13. The ITAT after careful consideration o[ the contentions raisedon behalf of the appellant and also material placed before it,dismissed the appeal, which is now under challenge. 14. The learned counsel for the appellant during the course ofhearing submitted that the printouts taken during the surveyoperation from the computer available at the premises of theappellant were not that of the appellant and further contendedthat the accountant was also working for other l-rrms. It is furthercontended that only to purchase peace and to avoid protractedenquiry and litigation, the appellant accepted the assessment ofthe A.O. to a tune of Rs.8,86,984/-. 15. The appellant further contended that during the assessmentproceedings, the A.O., wanted the appellant to reconcile thedifference between the two accounts and while completing theassessment, the A.O. did not consider all the expenditure andallowed deduction in respect of partial expenditure, resulting indetermination of total income at Rs.14,63,674 /- as against thereturned income of Rs.5,79,940/-. i6. The learned counsel further contended that the detailedexplanation submitted by the appellant was not considered by theA.O., and tllat initial burden [is ][on ]the [revenue. ][However, revenue] I I 7 failed to prove that the difference between the income returned andincome assessed as the concealed income and the A.O., has torecord his satisfaction before initiating the penalty proceedings andin the present case, the A.O. failed to record tJle same. It is final1ycoitended that the Iirst appellate authority as well as appellatetribunal is not [justified ]in rejecting the contention of the appellantand therefore, finally prayed to allow the appeal. 17. [rarned counsel for the appellant had relied upon t]refollowing decision s: (i) Chennakesava Pharmaceuticals vs. Commissioner ofIncome-TaxlIncome-Taxl (ii) Commissioner of Income-Tax, Vijayawada vs. LotusConstructions2;Constructions2; (iii) Principral Commissioner of Income Tax (Central| vs.Golden Peace Hotels and Resorts (P) Ltd.,3Golden Peace Hotels and Resorts (P) Ltd.,3 18. Per contra, learned standing counsel for the respondent would submit that the appellant itself admitted to ttre prolit andloss account taken from the computer during the survey operationand further, thr: appellant failed to provide any satisfactoryexplanation with regard to huge difference of gross income declaredby the assessee and the income shown in the profit and lossaccount during the survey. '12013; [30 ][Taxmann.Conr 385 ][(AP)] ' 120t51 [55 ][Tax-ann.conr ][182 ][(AP)] ' 1202t1 [12+ ][Tarmann.com ][249 ][(SC)] 19 . She further contended that Iirst appellate authority as wellas Appellate Tribunal clearly observed that before initiating penaltyproceedings, the A.O., had carefully considered the material andsatisfied about the concealment of the income during the course ofassessment proceedings and therefore, presumption in explanation(1) to Section 27'l (l)(cl of the Act is attracted. She furthercontended that the burden is on the assesse€ to satisfactorilyexplain with regard to the huge difference of gross income, whichthe assessee failed and therefore, the A.O., is justilied in initiatingthe penalty proceedings arrd prayed for dismissal ofthe appeal. Consideration '12013; [30 ][Taxmann.Conr 385 ][(AP)] ' 120t51 [55 ][Tax-ann.conr ][182 ][(AP)] ' 1202t1 [12+ ][Tarmann.com ][249 ][(SC)] 19 . She further contended that Iirst appellate authority as wellas Appellate Tribunal clearly observed that before initiating penaltyproceedings, the A.O., had carefully considered the material andsatisfied about the concealment of the income during the course ofassessment proceedings and therefore, presumption in explanation(1) to Section 27'l (l)(cl of the Act is attracted. She furthercontended that the burden is on the assesse€ to satisfactorilyexplain with regard to the huge difference of gross income, whichthe assessee failed and therefore, the A.O., is justilied in initiatingthe penalty proceedings arrd prayed for dismissal ofthe appeal. Consideration 20. Perusal of the material, proceedings of the A.O., wouldclearly show that before initiating the penalty proceedings, A.O.had sought clarification/explanation from the asseesee with regardto huge difference in gross income declared by the assessee wit-hthat of the income shown in the profit and loss account foundduring the survey operation. Further, the record also shows tl.atthe assessee failed to satisfactorily explain the huge difference ofgross income. On the contrary, the appellant admitted thedifference amounts and final assessment proceedings of the A.O.,making an addition of Rs.8,86,984/-. Record also shows that theadditions were made on the basis of the clear documentary PSK,J & LNA.JITTA No.224 of2007 evidence found [during ]the survey, which the appellant [agreed and]the evidence' found during the survey was signed by theaccountant as [well ]as [the ]Managing Partner of the appellant frrm.Consequently. the AO issued the [penalty ][proceedings ]underSection 27|(l)(cl [of the ][Act.] 21. The [appellant ][is ][aggrieved ]by the [consequential ][penalty]proceedings issued under Section 27l(ll(c) of the Act by the A.O.and challenged [ttre ][same ][before ][first ][appellate ]authority [and]thereafter, [before ][the ][Appellate ][Tribunal, ][however, ][without ][any]success. 22. [The ] [while ][dismissing ][the ][appeal ][had ][recorded ][the]following [conclusions/ ][observations:] (i) though the assessee claimed that certain expendifure wasnot [entered ][in ][the ][computerized ][accounts, his claim ][was ][limited ][to]ghe expenditure of Rs.3,O1,6O5/- and even after allowing the same,there [is ][huge difference ][and ][this ][was ][brought ][out ][by ][the ][A.O. ][after]exhaustive [discussion, ][which ][implies ][that ][the ][A.O. ][was ][satis{ied]that [the ][income ][returned ][by ][the ][assessee ][do ][not ][disclose ][the ][true]and [correct ][part.iculars ][and ][the ][differential ][amount was ][the]concealed [income of the ][assessee.] PSK.J <* LI'1,JITTA No )21 of2007 (ii) the assesseee had admitted that he had carefully gonethrough the print outs and sat with his accountant to notice thatthe print outs taken were of their concern. The dispute was onlywith regard to the expenditure part, which was also limited todeduction of Rs.3,01,605/- and the assessee admitted thedifferential income and could not furnish valid explalation for thedifference in the gross income. (iii) Once it is assumed that the A.O., was satisfied about theconcealment during the course of the assessment proceedings, thepresumption in Explanation (1) to Section 27|(l)(cl automaticallyarises when there is difference between the income returned andincome assessed as held by the apex Court in the case of CIT vs.K.P.Madhusudhana, the burden is on the assessee to prove thatthe addition made by the A.O. does not refer to the concealedincome of the assessee. However, the assessee failed to providesatisfactory explanation. 23. The material on record shows that A.O., has providedreasonable opportunity to the pelitioner and also soughtclarification and having not satisfied with the explanation/clarification provided by the petitioner, the A.O., had passed theimpugned order and recorded the reasons for his conclusion as '25rImgs(sc) 23. The material on record shows that A.O., has providedreasonable opportunity to the pelitioner and also soughtclarification and having not satisfied with the explanation/clarification provided by the petitioner, the A.O., had passed theimpugned order and recorded the reasons for his conclusion as '25rImgs(sc) mentioned in the preceding paragraphs. The first- appellateauthority had also adverted to the contentions raised by thepetitioner and on due consideration had conlirmed the orders ofthe A.O. 24. The [judgments ]relied upon by the appellants aredistinguishable orr facts and therefore, do not apply to l.he facts ofthe present case, since in those cases, the Honble Court came toconclusion that the Assessing Officer neither satisfied nor therewere findings for initiation of the penalty proceedings. 25. In view of above discussion, the contentions and groundsraised by the petitioner are devoid of merits and are contrary tomaterial on record, more so, in the light of the reasons recordedand observations made by the A.O., the First Appellate Authorityas well as the Appellate Tribunal. Conclusion: 26. In view of the facts explained above and the legal position,the appellant failed to make out any case warranting interferenceof this Bench with the orders passed by the Income Tax AppellateTribunal. l2 27. For all the aforesaid reasons, [we ][are of ][the ][firm ][view ][that ][the]questions of law raised by the appellant deserves [to ][be decided ][in]negaLive and thus, appeal [deserves ][to ][be and ][is ][accordingly]dismissed conf-trming the order [of ][the ][Appeilate ][Tribunal. ][There]shall be no order as to costs. 28. Pending miscellaneous [applications, ][if ][any, ][shail ][stand]closed. SD/. K SRINIVASA [RAO,]JOINT REGISTRAR.( . ,,/\.///TRUE COPY//vSECTION OFFICER HIGI.I COURTDATED:2010912023 1'aESTAtlO-)0 2 [tEB ][202[].()IlrijJUDGMENT-**lTTA.No.224 of [2007]f;,-i 2 {1DISMISSING TI-IE WITHOUT COSTSI